When does remote work create a tax presence?

As cross-border remote work becomes more common, so too does the question: when does an employee working from another country create a taxable presence for their employer?

This was the focus of a recent internal training session at Graphene Economics®, based on the 2025 update to the OECD Model Tax Convention, and presented by Carmen Ferreira and Menzikhaya Zulu. They shared how the update brings renewed attention to permanent establishment (PE) risk in the context of short-term, cross-border remote work. We thought this might be useful to you too, so we’ve summarised the presentation below:

What has changed?

In the latest update to Article 5, the OECD provides additional clarity on how PE should be applied in a world where employees can work from anywhere.

Historically, PE risk was associated with physical offices, branches or dependent agents. Today, a laptop and stable internet connection can raise similar questions.

The key issue is whether an employee’s presence in another country creates a sufficient level of business activity or nexus for that country to claim taxing rights.

Assessing risk

To help navigate PE risk, the OECD provides a two-step assessment framework:

• A 50% time indicator: If an employee spends more than half their working time in another country, this may indicate a stronger link to that jurisdiction. This may be the case even if the premises is not a formal office space (for example, a holiday home or rental).
• A commercial reason test: Why is the employee working there? If the arrangement is driven by business needs, this may increase PE risk. If it is purely for personal reasons, the risk may be lower.

Neither test is decisive on its own. Together, they provide a practical starting point for identifying situations that warrant closer review.

Carmen and Menzi also highlighted the special rule for self-employed individuals, which can create a permanent establishment even where no fixed place of business exists.

Under this rule, a PE may arise if a self-employed person is physically present in a country for more than 183 days within a 12-month period and derives income from services performed there. This lowers the threshold for tax exposure compared to traditional PE tests and is particularly relevant in a remote work context, where individuals may operate independently across borders without a formal office footprint.

PE risk factors

PE risk is highly fact-specific, but a few common scenarios illustrate where issues may arise:

• Relocation or extended stays: An employee chooses to work remotely from another country for several months, continuing to perform their usual role.
• Client-facing or revenue-generating roles: If the individual is involved in negotiating or concluding contracts, the risk increases.
• Business-driven arrangements: For example, where an employee is placed in a jurisdiction to support market entry or oversee local operations.
• Post-COVID working patterns: Temporary remote work arrangements that quietly become long-term can attract scrutiny.

In these cases, the question is not just where the employee is located, but what they are doing and why.

The African context

While OECD guidance is influential, its application across African jurisdictions is not always consistent.

In practice, PE assessments are often driven by local interpretation and audit activity, rather than strict adherence to OECD commentary.

At the same time, revenue authorities across the continent are becoming more sophisticated, with increased information sharing and a stronger focus on cross-border transactions.

This means that what may appear to be a low-risk arrangement can still trigger questions if it is not properly considered and documented.

South African position

In South Africa, PE risk is shaped by both domestic source rules and treaty-based principles. Non-residents are taxed on South African-sourced income, generally where services are performed. However, where a tax treaty applies, business profits are typically only taxable if a PE exists (notwithstanding the provisions for employment income provisions in tax treaties).

This distinction is important in a remote work context. An employee working in South Africa may create a local source of income, but the employer will only be taxed if that activity also gives rise to a PE under the relevant treaty.

Recent developments have made this more practical and immediate for businesses:

• Mandatory PAYE registration: Non-resident employers with a South African PE must register for PAYE and withhold employee taxes locally.
• Increased scrutiny of remote work: PE risk is more likely where employees perform core business activities, rather than preparatory or auxiliary functions.
• Broader compliance implications: A PE may trigger SARS registration, payroll obligations and, in some cases, registration as an external company.

Other recent developments on the continent

Kenya

In January 2025, Kenya mandated that employees working remotely outside the country for a Kenyan employer must register for and pay tax in Kenya. Additionally, the Draft Significant Economic Presence Tax (SEPT) Regulations 2025 propose a 3% tax on gross turnover for non-residents providing digital services, though this does not apply if they already have a PE in Kenya.

Nigeria:

While specific new PE statutes for remote work are pending, Nigeria generally follows the Significant Economic Presence (SEP) rules introduced in the Finance Acts, which can capture remote digital activities.

Egypt

Labor Law No. 14 of 2025 formally recognises remote work for the first time, providing a legal foundation for cross-border employment relationships. Egypt also introduced Law No. 5 of 2025, allowing unregistered businesses to reconcile their tax positions for past periods without penalties if they register within a specific timeframe.

Why this matters for businesses

If a PE is deemed to exist, the implications can be significant:

• Corporate tax obligations in the host country
• Profit attribution requirements
• Potential exposure to penalties and double taxation

As remote work becomes embedded in business operations, these risks are becoming part of routine tax audits and reviews.

How to respond

Businesses do not need to eliminate flexibility, but they do need to manage it deliberately.

This includes:

• Tracking where employees are working from
• Assessing roles and activities in each jurisdiction
• Documenting the commercial rationale for arrangements
• Reviewing policies on cross-border remote work

Need help navigating PE risk?

If your organisation has employees working across borders, now is a good time to review your position. Graphene Economics® works with clients across Africa to assess PE exposure, support documentation, and align transfer pricing policies with evolving tax expectations.

Get in touch with our team to discuss how these developments may affect your business.